HOW COMPENSATION SUPPORTS THE NEW MODEL
The compensation system should have full employee participation. The company must provide and encourage training to help employees master these tasks. Compensation should be customer driven. Most quality experts would agree with Dr. Michael Beer, a Harvard professor of business administration, who wrote in Harvard Business Review: “Pay's function is to create equity and fairness. it should attract people to an organization and keep them there. Pay should not be an active ingredient in promoting teamwork and motivating performance.”
Key principles of quality management:
To "create equity and fairness" while supporting the new management model, a compensation system should follow these key principles of quality management:
- Compensation should be customer driven.
- Pay all employees for skills that matter to the company's external customers.
- Doing so requires a clear understanding of what customers need and expect, and what the company does to meet those needs and expectations.
- Internally, both employees and managers are "customers" of the compensation system. Their needs and expectations must also drive the compensation system.
- Compensation should be team-oriented.
- Total quality management requires the extensive use of teams.
- If any compensation is considered "at risk"—dependent on performance or results—it should be based primarily on achieving team goals.
- Compensation should be measurable.
- The measures used to determine any at-risk pay must be the observable results of team performance.
- Measures must be relevant, available throughout the process, focused on what is important to the customer, and established, collected, and controlled to a great degree by the team.
- The compensation system
- The compensation system should have full employee participation.
- As Berwick writes, "Knowledge is in the workforce." Employees, individually and in teams, must participate in setting meaningful goals, identifying key performance indicators, and monitoring and evaluating progress.
- The company must provide and encourage training to help employees master these tasks.